28 October 2011

Is Financial Forecast Important for Your Startup?

"Capital as such is not evil; it is its wrong use that is evil. Capital in some form or other will always be needed," once said Mahatma Gandhi. So, how can you manage to evict the evil? Every entrepreneur does it in their own way, term it differently, but all the river bounces in one sea, the "Financial Forecast".

Planning out and working on the company's financial projections each year is an important task that every startup performs for his business, and the results are often less important than the process itself. A regular planning also helps the startup entrepreneur to identify whether or not it is a good business to start, and to make wise business decisions along the way.
Is Financial Forecast Important for Your Startup?

A financial forecast helps to pre-screen the worth pursuing a business and let the entrepreneur know if he need to proceed further or opt for a different one. While framing the financial forecast for the business, he can make a deep understanding about the business and ask new questions about spending and investing money wisely in the business, making him more effective in due diligence.

The financial forecast will also help him to find out the quantity that he needs to sell to break even and help him back the startup costs. It will also help a startup entrepreneur to know how much time it will take for his business to become profitable and if he is capable of supporting his company without profit until then. The financial forecast supports a startup in terms of raising fund. Bankers and investors want to see the financial forecasts to get assured of the financial success of the business before they commit for investing in these businesses.

The financial plan helps to translate the company's goal to real and specific targets by defining the successful outcome that the business entails. Such plans are not merely a prediction; it implies a commitment to making the targeted results happen and establishes milestones for great progress. Such plans provide the startups with a vital feedback and control tool. It also serves as a warning of problems much ahead of time. The differences if occurred can be solved with the framework for determining the financial impact and the effects of various corrective measures taken by them.

The financial forecast will help the startup to know whether he needs to start small or invest in a big business and also let him know how the company can grow under each scenario.